A key date is drawing near for investors in Landcadia Holdings II (NASDAQ:LCA). On Dec. 18, shareholders in LCA stock are scheduled to vote on a proposed merger with Golden Nugget Online Gaming. The merger is expected to be approved.
If that occurs — and no opposition is anticipated at the meeting — then Landcadia’s ticker will change to GNOG and the special purpose acquisition company (SPAC) will be absorbed by the New Jersey online gambling firm.
While there have been many SPACs throughout 2020, this deal is interesting for a couple of reasons. For one, both LCA and Golden Nugget are owned by Tilman Fertitta. He will be CEO of “new” company.
Additionally, when the proposed merger was announced, the pro forma value was set at about $745 million.
The Volatility Visiting LCA Stock
Shares of LCA moved significantly in the days leading up to the scheduled vote.
On Dec. 16, just two days prior to the decision, LCA stock ranged from $20 a share to $23 with plenty of rises and dips along the way. The pre-merger trading pushed Landcadia into the vicinity of its 52-week high of $25.45 per share.
LCA’s recent altitude is noteworthy. The stock reached a low of $8.82 per share over the last year. Now it’s trading at nearly $24.
Another in the SPAC Trend
The Landcadia-Golden Nugget deal will be the latest in a rash of special purpose acquisition mergers seen by the market in 2020.
SPACs are companies created and taken public under strict terms. Among other things, these rules require the company find a partner and merge within a set period of time. Technically, these are reverse mergers — the private company absorbs the public entity, allowing it to reach the stock market while saving some of the cost and work associated with an IPO. One downside, however, is that there is less information available to potential investors.
In this case, Tilman Fertitta — who also owns restaurants, hotels and the Houston Rockets — organized the deal. He will be able to reduce and restructure debt with the proceeds. And, as the name Landcadia Holdings II implies, this will be his second SPAC deal.
What makes the LCA stock stand out, though, is that it offers one thing not found in many SPAC deals: profitability. The Golden Nugget internet gaming business is already in the green. This provides an interesting contrast to competitors like DraftKings (NASDAQ:DKNG), a company that is not expected to post profits for a couple of years.
However, GNOG and DKNG will have one thing in common: a dual stock structure. GNOG stock will be traded in Class A and Class B shares. What’s more, Fertitta will be the majority shareholder.
Plenty of Interest
Rightfully so, Golden Nugget’s proposed reverse merger with Landcadia II has generated a lot of interest from investors and those who follow online gaming and sports betting. That’s because this is an emerging and competitive segment as well as a growth opportunity.
As we all know, investors adore growth opportunities. That’s largely what makes LCA stock so tempting right now.
Recently, InvestorPlace contributor Todd Shriber discussed this potential, citing “the hot, hype-filled iGaming and online sportsbook arenas.” Shriber noted that Golden Nugget prospers despite the competition in New Jersey and that it’s also poised to act when other states approve this form of gambling. He continued, “Obviously, the key for GNOG is to gain approval in as many states as possible.”
Bottom Line
When I wrote about Landcadia in late October, I acknowledged the deal’s ground-floor appeal, as well as the hot gaming business. I also cited Fertitta’s first SPAC deal, which involved an online food ordering and delivery firm with anemic results.
As such, I urged potential investors to seriously weigh the risks of a deal designed to benefit Fertitta. That still holds. Do not be swayed by the allure of online betting as the proposed merger approaches.
Instead, buy LCA stock with money reserved for speculative investments only. There’s promise here, but also risk.
On the date of publication, Larry Sullivan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Larry Sullivan is a veteran journalist in Florida who has covered banking and finance for several years. He is a former investing editor at U.S. News & World Report in Washington D.C.
